Cash
Easy Practice Test
Introduction to Accounting
Cash
Easy Practice Test
Click the “Check Your Answer” box below each problem to reveal the correct answer and explanation.
1. An item with a positive amount in the cash general ledger column of the bank
reconciliation will be recorded as a
a. debit to cash
b. credit to cash
c. debit to an expense
d. debit to revenue
Check Your Answer
A. A positive amount means the item increases the cash account. An increase to cash is recorded with a debit to cash. A debit to an expense or revenue does not increase cash (c. & d.).
2. The two items that will almost always appear on the bank reconciliation are
a. deposits outstanding and checks in transit
b. outstanding checks and deposits in transit
c. interest expense and non sufficient funds checks
d. a decrease to cash for automatic deposits
Check Your Answer
B. Outstanding checks and deposits in transits are timing differences of when the bank posts the items and when the company records the items. These are the two most common reconciling items.
3. Reconciling amounts on the bank reconciliation are
a. recorded in the same period by the company and the bank
b. recorded in different periods by the company and the bank
c. always an error made by the company or the bank
d. always added to the company’s cash account
Check Your Answer
B. Items on the bank reconciliation are ones that are included in either the company’s cash balance or the bank’s cash balance but not both. This occurs because items are recorded in different time periods (this period or next period). An error will always be on the bank reconciliation, but most items are not errors.
4. Which of the following will cause a non-sufficient funds check to occur?
a. a customer does not have enough funds in their account to clear the check
b. the company does not have enough funds in their account to clear the customer’s check
c. the customer has written more checks than the bank allows
d. all of the above
Check Your Answer
A. (a.) is what causes a non-sufficient funds check. (b. & c.) are not something that
occurs.
5. When the bank reconciliation shows a reconciling item for an automatic withdrawal made by the company to repay amounts owed to another bank, a journal entry must be made that will
a. debit cash
b. debit notes payable
c. credit interest payable
d. credit notes payable
Check Your Answer
B. This transaction is cash taken out of the company’s account and payment made to the note payable reducing the balance owed. This is done with a debit to notes payable and a credit to cash.
6. Reconciling items listed in the bank column will always
a. be recorded by the company in the cash entry
b. be items the company does not know occurred
c. be items the bank has not yet recorded but the company knows occurred
d. be items the company has not yet recorded
Check Your Answer
C. Items in the bank column will be recorded by the bank next period and are not recorded in the cash entry because they have already been recorded in the cash account. The company knows the transaction occurred and the bank will know and record the transaction next period.
7. In which column should an error amount be written on the bank reconciliation?
a. always in the company column
b. in the column of the party that made the error
c. in the column of the party that did not make the error
d. in the column of the party that recorded the entry correctly
Check Your Answer
B. The error should be written in the column of whoever made the error. The one that made the error is the one that needs to correct it to get to the true balance.
8. Service charges and interest earned will always be recorded in which column?
a. the bank column
b. the cash general ledger column
c. either depending on when the service charge and interest occurred
d. the service charge goes in the bank column and interest goes in the company general ledger column
Check Your Answer
B. Service charge and interest earned are already recorded on the bank statement because the bank knows the charge and the amount of interest earned. The company waits to record these until it knows the exact amount. Since the company is the one that has not recorded them, these items go in the cash G/L column.
9. Which of the following are always recorded by the company prior to preparing the bank reconciliation?
a. deposits made and checks written
b. deposits and checks that are cleared only
c. service charges
d. interest earned on the average balance
Check Your Answer
A. The company only records transactions and amounts that they know about during the period. The company does not know which items have cleared or the exact amount of service charges and interest earned.
10. Deposits in transit are recorded after the bank reconciliation is prepared with
a. a debit to cash
b. a credit to accounts receivable
c. a debit to accounts payable
d. they are not recorded after the bank reconciliation is prepared
Check Your Answer
D. Deposits in transit are already recorded by the company and are not recorded again. The journal entry was made to increase cash when the deposit was made.
11. Good internal controls related to cash are designed to
a. defer fraud and theft
b. determine the most responsible person in the company and put them in charge of all duties related to cash
c. have different employees handle cash and account for cash
d. have the same employee record customer payments and record the reduction to accounts receivable
Check Your Answer
C. Good internal controls provide for separation of duties. This means that the same person does not handle the asset and record the journal entry. Good internal controls prevent fraud and theft (b.)
12. Which of the following will a bank consider cash or cash equivalents?
a. a money-order
b. a 1-month certificate of deposit
c. a check
d. all of the above
Check Your Answer
D. All of the above are considered cash equivalents.
13. The company has the following information for the month of May:
1. The bank statement ending balance is $4,123 on the May statement
2. The cash account balance is $3,956 on May 31st.
3. The bank service charge for May is $19
4. Deposits not yet posted by the bank as of May 31 st total $2,100.
5. Checks written by the company, not yet cleared by the bank on May 31 st total $943
6. A customer paid $1,297 with an automatic payment to the company’s account on May 27th.
7. Interest earned on the average balance for May was $46.
A. Prepare the bank reconciliation for the company for the month of May.
B. Prepare the journal entries required to the cash account.
Check Your Answer
A.
| Cash | Bank | ||
| Ending Balance 5/31 | $3,956 | $4,123 | |
| Bank service charge | ($19) | ||
| Deposits in transit | $2,100 | ||
| Outstanding checks | ($943) | ||
| Customer auto payment | $1,297 | ||
| Interest earned | $46 | ||
| Adjusted 5/31 balance | $5,280 | = | $5,280 |
B. Make a journal entry for items in the cash column only.
Cash 1,324
Service Charge 19
Accounts Receivable 1,297
Interest Revenue 46
Cash has increased so cash must be a debit.
A customer payment reduces accounts receivable
Decreases on the reconciliation are recorded as a debit
Increases on the reconciliation are recorded as a credit
14. The company’s unadjusted cash balance on March 31st is $9,012. The following information was determined after reviewing the bank statement:
| Checks that have not cleared the bank | $2,206 |
| Deposits not yet posted by the bank | $2,907 |
| NSF check written by a customer for | $125 |
| Bank error – deposit recorded was less than actual deposit | $300 |
| Interest earned by the company | $110 for March |
A. Determine the company’s true cash balance on March 31st.
B. Prepare the journal entries required to the cash account.
Check Your Answer
A.
| Cash | Bank | |||
| Ending Balance 3/31 | $9,012 | $ ?? | must be $7,911 | |
| Bank service charge | ($85) | |||
| Deposits in transit | $2,907 | |||
| Outstanding Checks | ($2,206) | |||
| NSF Checks | ($125) | |||
| Interest earned | $110 | |||
| Bank error | $300 | |||
| Adjusted 3/31 balance | $8,912 | = | $ ?? | must also be $8,912 |
To determine the company’s true cash balance you don’t need to know the bank balance. If you identify all the items the bank recorded and the company has not yet recorded, this will give you the adjusted cash balance. The bank adjusted balance must be the same amount. You can work backwards and get the balance per the bank statement, $7,911.
B. Record items in the cash column only
Service Charge 85
Accounts receivable 125
Cash 100
Interest Earned 110
Cash is lower, so you must decrease the cash account with a debit for the difference.
A NSF check means the customer did not pay, so you must put the accounts receivable amount back on the books because they still owe the company.
Service charge is an expense which must be recorded with a debit
Interest earned is a revenue which increases with a credit
Decreases on the reconciliation are recorded as a debit
Increases on the reconciliation are recorded as a credit
15. The company received the bank statement stating the April 30th balance of $12,013 and noted the following items on the bank statement that had not yet been recorded:
Bank fees for the month were $29
Interest earned during the month totaled $148
NSF checks totaled $397
The company’s cash account had the following entries:
Checks written $ 7,856
Deposits made $10,200
Balance on 4/30 $13,650
The company’s accountant noted the following:
Outstanding checks totaled $1,300
Deposits in transit $2,659
A. Prepare the bank reconciliation for the company for the month of April.
B. Prepare the journal entries required to the cash account.
Check Your Answer
A.
| Cash | Bank | ||
| Ending Balance 4/30 | $13,650 | $12,013 | |
| Bank fees | ($29) | ||
| Deposits in transit | $2,659 | ||
| Outstanding Checks | ($1,300) | ||
| NSF Checks | ($397) | ||
| Interest earned | $148 | ||
| Adjusted 3/31 balance | $13,372 | = | $13,372 |
Items noted on the bank statement have not been recorded by the company and must be written in the cash column.
Checks written and deposits made are already recorded by the company and included in the ending balance and are not written in the cash column. Only the amounts the bank does not know about are written in the bank column (deposits in transit and outstanding checks)
B. Only record items in the cash column. Record the difference in the beginning and ending cash balance to the cash account.
Bank Fees 29
Accounts Receivable 397
Interest Revenue 148
Cash 278
Negative amounts are debits
Positive amounts are credits